PATIO,BENGALURU vs. INCOME TAX OFFICER, WARD 4(2)(1), BENGALURU

ITA 2109/BANG/2026Status: DisposedITAT Bangalore28 September 2026AY 2020-216 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the estimation of profit at 8% of total turnover by the Assessing Officer could not be sustained in the absence of any identified defect in the books of account. The Tribunal noted that the AO had no opportunity to examine the assessee's books, although they were audited and filed with the return. The Tribunal stated that books can only be rejected if they disclose latent, patent, or glaring defects, which were not established. Since neither the AO examined the books nor did the assessee produce them during assessment proceedings, the Tribunal restored the issue to the AO for examination of the books and necessary inquiry. The assessee was directed to substantiate its books with evidence, and the AO was to assess total income accordingly. If the books correctly reflected income, the reported results would be accepted. Grounds 2 and 3 were allowed for statistical purposes. The alternative proposal of 6% profit rate was dismissed as it would still involve determining income without examining books. Ground 4 concerning interest under Sections 234A and 234B was dismissed as consequential. Ground 5 was general and dismissed. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, a partnership firm engaged in interior services and furniture supply, failed to file its income tax return for Assessment Year 2020-21. Following information on TDS and GST turnover, the Assessing Officer (AO) issued a notice under Section 148. The assessee then filed a return declaring a total income of ₹1,575,530. The AO, noting the lack of explanation for scrutiny selection and approaching limitation, proceeded to pass an assessment order under Section 144. The AO determined total income at ₹3,034,651, making an addition of ₹4,059,121 based on presumptive profit under Section 44AD, estimating profit at 8% of turnover due to the absence of a tax audit report despite substantial turnover and operations. The assessee's books of account were not examined by the AO. The CIT(A) upheld the AO's order, stating the assessee did not provide an opportunity to examine the books.

What were the issues?

1. Whether the learned Authorities below erred in law and on facts in estimating the appellant’s income without rejecting the books of account as required under Section 145(3) of the Income-tax Act, 1961, despite the appellant maintaining regular books of account duly supported by audited financial statements and a tax audit report? (Mixed law and fact, turns on Section 145(3)) 2. Whether the learned Authorities below erred in law and on facts in invoking and applying Section 44AD of the Act to estimate the appellant’s income at 8%, despite the appellant’s turnover exceeding INR 2 crores during the relevant previous year, thereby rendering the provisions of Section 44AD inapplicable for Assessment Year 2020-21? (Mixed law and fact, turns on Section 44AD) 3. Whether the learned Authorities below erred in law and on facts in not restricting the profit rate to 6%, in terms of the proviso to Section 44AD(1) of the Act, under the facts and circumstances of the Appellant’s case? (Mixed law and fact, turns on Section 44AD(1)) 4. Whether the learned authorities below erred in law and on facts in levying interest u/s 234A and 234B, which being consequential in nature, is not leviable under the facts and circumstances of the Appellant’s case? (Law, turns on Sections 234A and 234B) Assessee's Contentions: The assessee argued that its books of account were audited and furnished, and thus could not be disregarded without justification. Income should not have been arbitrarily estimated at 8% of turnover. The assessee also contended that Section 44AD was inapplicable as turnover exceeded INR 2 crores, and alternatively, if applied, the profit rate should be restricted to 6% as per the proviso to Section 44AD(1). Revenue's Contentions: The revenue argued that the assessee was a non-filer and did not cooperate. Audited books could not be relied upon as they were not produced before the AO, necessitating estimation of income. The AO correctly applied Section 44AD and estimated profit at 8% of turnover, which was rightly upheld by the CIT(A).

Which sections of the Income-tax Act were involved?

Section 147,Section 145(3),Section 44AD,Section 44AD(1),Section 44AB,Section 144,Section 234A,Section 234B,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI PRASHANT MAHARISHI

PER SHRI PRASHANT MAHARISHI, VICE PRESIDENT

1.

This appeal is filed by the Assessee against appellate order passed by the National faceless appeal Centre NFAC Delhi (the learned CIT – A) for assessment year 2020 – 21 on 17 March 2026 wherein the appeal filed by the assessee against the assessment of order passed under section 147 of the income tax act, 1961 (the act) dat

The order continues below.

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